The goal of this blog is to help you learn about healthcare leading practices for fixed asset management and suggest tips for implementing them in your hospital. These leading practices will help you to seek out potential savings in your fixed asset base and show you how to save time in the process. Key topics covered include:
- Healthcare Fixed Asset Management Issues
- Facility Manager (role/considerations)
- Review prevailing Leading Practices
In the post-Sarbanes-Oxley (SOX) healthcare environment, new emphases have been placed on corporate accountability in both accounting rules (US GAAP and IFRS) and in cost accounting. Both expect enhanced transparency with fixed asset management records – which generally represent the biggest line item of a hospital’s balance sheet. The importance of an accurate and well-documented fixed asset management record is paramount, but maintaining a reliable fixed asset inventory is a challenging, labor-intensive task for any hospital, public or private. Leveraging (optimizing) the hospital systems investment can:
- Maximize maintenance effectiveness by streamlining the maintenance processes to extend the longevity of assets and improve productivity;
- Reduce inventory costs by assisting in avoidance of carrying unneeded inventory or experiencing downtime because of inadequate inventory;
- Increase warranty recovery by improving tracking of repairs that are eligible for warranty claims; and
- Improve reliability and risk management by anticipating and mitigating asset reliability and regulatory risks.
Healthcare Fixed Asset Management Issues
Addressing fixed asset acquisition (capital management program with myriad of checks, balances, processes, and practices) versus asset maintenance (workflow where the focus is in the maintenance part – tasks, parts, purchases, tools, skills, permits etc…) continues to challenge Healthcare. Maintenance Management, for example, has an extensive interaction with the procurement applications to manage the parts and purchase requirements as well as interaction with the human resources application to control and validate skills for maintenance. Yet, rarely is there feedback on what was done to the fixed asset solution, nor are statistics and cost information shared with the originating business unit.
This challenge is further amplified when one attempts to overlay the logical Asset Lifecyle with that of the Procurement and Maintenance business processes as illustrated below.
Healthcare historically, as illustrated above, has focused upon the fixed asset management capital depreciation(s) and meeting minimal (core) regulatory compliance. The challenge is most of the data about fixed assets is maintained within many disparate applications that maintain their own data on the fixed assets (in silos), as illustrated below, where need and utilization of fixed assets within a hospital are clinical in nature. Most of the disparate systems further both maintain redundant data and use differing data definitions.
From operating rooms (ORs) to clinical data centers, hospitals have a business need to optimize asset utilization and avoid asset failures. However, the lack of complete understanding of the capital acquisition process all the way to the maintenance process has limited hospitals from gaining some bottom-line impact. For example, capital funding requires substantive metrics and objective risk analysis and most healthcare organizations continue to believe that preventive maintenance increases operational capabilities, often viewing it as cost and not as an investment. This is illustrated as hospital managers struggle to obtain the basic requisite data—the functionality, age, capital investment, transparency, and sustainability of their assets—to calculate the real value of a hospital’s business unit’s fixed assets. Thus, most cannot connect the dots of the complete Asset Lifecycle impact to revenue.
Consider the importance of avoiding any potential lost revenue related to the breakdown of a fixed asset, e.g., the shutdown of an OR. There are many pieces of equipment necessary to keep an OR functioning at peak efficiency. Should the chiller malfunction, the power drop and the generator fail to kick in, or the medical gases fail to flow efficiently, there will be financial ramifications for the organization. The most obvious consideration is the cost to repair, maintain, and/or ultimately replace the chiller. Further exacerbating the situation could be the timing of the equipment failure: When such failures occur on a weekend or during another off-peak time, repair services are charged at a premium rate. If a procedure is in process when the malfunction occurs, the cost of the breakdown may be incalculable in terms of its effect on patient safety, quality of care, and reputation.
Additional key consideration Include:
- Addressing environmental, safety, legal, quality requirements and compliance
- Increasing asset reliability and availability
- Addressing current Asset Inventory and Status
- Managing complexity in capital planning
- Addressing maintenance considerations
- Addressing Maintenance as an investment (not as a Cost)
- Facility Manager(s) role
- Establishing the highest standards of depreciation accuracy and leading practices in fixed asset management will pay off in savings and efficiency whether you are a:
- Corporate accountant managing fixed assets
- Assisting the CFO to optimize business efficiencies and plan capital budgets
Prevailing Leading Practices
Start with an accurate inventory (validate the fixed asset information by conducting a complete physical inventory) to verify the hospital’s fixed assets. Without it, no amount of added processes, controls, or correct calculations can ensure the accuracy of fixed asset accounting.
- Address “ghost” assets. A “ghost” asset is property that is lost, stolen, or unusable, but is still listed as an active fixed asset in the system.
- Conduct physical asset inventories. Fixed assets should be inventoried on a regular basis using a standardized method at every business unit. The accounting department and facilities department should work together to establish a system for conducting inventories as well as creating new assets in the fixed asset management system upon purchase. In this way, both the facilities team and fixed asset accounting managers can be confident that ongoing operational procedures will result in the most accurate information possible in the health system’s fixed asset management system.
- Tag assets (appropriately). When a hospital owns multiple fixed assets that are nearly identical, it can be very easy to make mistakes by creating duplicate asset records or failing to dispose of the correct asset when identical assets are retired. The easiest solution is to tag each asset with a unique identifier in the form of bar code labels. This provides the additional advantage of speeding up the inventory process through the use of handheld technology that can scan and record each bar code in seconds.
- Using the right labels for the job. Labels are an important aspect of fixed asset management that is often overlooked. Choose the right type of bar code labels for assets and environment in which the asset(s) operates.
- Leverage software investments. I suggest that you:
- Address amount of fixed assets to be inventoried in financial applications
- Conduct annual inventories within Supply Chain Management
- Establish standards for inventories conducted
When added to your fixed asset depreciation solution, an integrated solution will save time through automatic reconciliation of the latest inventory data. “Optimized” software dramatically reduces errors because inventory data does not have to be manually re-entered into the systems. For a solution to be effective, it should easily integrate to your existing fixed asset depreciation process and your general ledger system.
To further reduce the risk of needless human error and make the best use of employee time, it is essential that the fixed asset management system integrate with your accounting system. All fixed asset management modules should integrate seamlessly together and reconcile within one centralized system of record. Whenever data can be automatically shared between applications, valuable time is saved that would otherwise be spent manually re-keying critical data. Integration also ensures that clerical errors, such as typos, do not cost the hospital money and compromise accuracy
- Migrate from spreadsheets. Historically, fixed asset managers have calculated depreciation using legacy systems and spreadsheets/workbooks (non-system of record) that they must maintain manually. Creating depreciation spreadsheets requires a tremendous expenditure of time and the spreadsheets are prone to many problems, including:
- Errors in formulae that go unnoticed and cause miscalculations
- Changes in tax rules and regulations that do not get incorporated
- Lack of audit trails and history
- Inability to easily change depreciation methods for an asset
- Limit internal control features to comply with Section 404 of Sarbanes-Oxley
- Often do not address government asset manager compliance to GASB 34/35 standards
- Limit POCT Regulations and Passing Inspections
- Limit Joint Commission Accreditation Process
- Do not address AOA–HFAP (Healthcare Facilities Accreditation Program) www.hfap.org/
Miss supporting reimbursements http://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/downloads/R433PR1.pdf